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Employment protection and productivity: evidence from firm-level panel data in Japan

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  • H. Okudaira
  • M. Takizawa
  • K. Tsuru

Abstract

Recent developments in the literature on Employment Protection Legislation (EPL) have revealed that changing the stringency of employment protection can lead to extensive consequences outside the labour market, by affecting firms’ production decisions or workers’ commitment levels. This article provides the first empirical evaluation of the comprehensive effect of restrictions on firing employees in Japan, by exploiting the variations in court decisions. We find that judgements lenient to workers significantly reduce firms’ total-factor productivity growth rate. The effect on capital is mixed and inconclusive, although we obtain modest evidence that an increase in firing costs induces a negative scale effect on capital inputs.

Suggested Citation

  • H. Okudaira & M. Takizawa & K. Tsuru, 2013. "Employment protection and productivity: evidence from firm-level panel data in Japan," Applied Economics, Taylor & Francis Journals, vol. 45(15), pages 2091-2105, May.
    • Handle: RePEc:taf:applec:45:y:2013:i:15:p:2091-2105
    DOI: 10.1080/00036846.2012.654913
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    Cited by:

    1. Francois J. Stofberg & Jan H. van Heerden & Heinrich R. Bohlmann, 2020. "A Fiscus for Better Economic and Social Development in South Africa," Working Papers 202072, University of Pretoria, Department of Economics.
    2. Bjuggren, Carl Magnus, 2018. "Employment protection and labor productivity," Journal of Public Economics, Elsevier, vol. 157(C), pages 138-157.
    3. Alpysbayeva, Dinara & Vanormelingen, Stijn, 2022. "Labor market rigidities and misallocation: Evidence from a natural experiment," Labour Economics, Elsevier, vol. 78(C).
    4. Andrew E. Clark & Akiko Kamesaka & Teruyuki Tamura, 2015. "Rising aspirations dampen satisfaction," Education Economics, Taylor & Francis Journals, vol. 23(5), pages 515-531, October.
    5. Li, Guangzhong & Fujiyama, Keishi & Wu, Cen & Zheng, Ying, 2024. "Employment protection, corporate governance, and labor productivity around the World," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 92(C).
    6. Daniel Schwab, 2020. "Labor protection laws and the drain on productivity: Evidence from India," Review of Development Economics, Wiley Blackwell, vol. 24(2), pages 383-401, May.
    7. Jayakody, Shashitha & Morelli, David & Nica, Melania & Oberoi, Jaideep, 2024. "Trust and employment protection legislation," Economics Letters, Elsevier, vol. 234(C).
    8. Daniel Schwab, 2019. "Labor protection laws and the drain on productivity: Evidence from India," Working Papers 1906, College of the Holy Cross, Department of Economics.
    9. Daniel Schwab, 2016. "Employment Protection and the Labor Informality of the Youth: Evidence from India," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-280, Boston University - Department of Economics.
    10. OKUDAIRA Hiroko & TAKIZAWA Miho & YAMANOUCHI Kenta, 2022. "Does Employee Downsizing Work? Evidence from Product Innovation at Manufacturing Plants," Discussion papers 22015, Research Institute of Economy, Trade and Industry (RIETI).
    11. Michele Capriati & Valeria Cirillo & Marialuisa Divella, 2024. "Productivity slowdown across European regions: does non-standard work matter?," Regional Studies, Taylor & Francis Journals, vol. 58(9), pages 1687-1709, September.
    12. Chaudhary,Sarur & Sharma,Siddharth, 2022. "The Impact of Lifting Firing Restrictions on Firms : Evidence from a State-Level Labor Law Amendment," Policy Research Working Paper Series 10039, The World Bank.
    13. Stofberg, F.J. & van Heerden, J.H. & Horridge, M. & Roos, L., 2022. "A fiscus for better economic and social development in South Africa," Conference papers 333392, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    14. Guo, Jing & Tang, Qi & Jin, Guangzhu, 2021. "Labor protection and the efficiency of human capital investment," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 195-207.

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